"Wink wink nudge nudge" followed by "say no more, say no more," is a statement popularized by Eric Idle in his Monty Python days in the early 1970s. The winks and nudges are verbal explications of gestures people make when they want to pass on something sly (a wink of the eye and an elbow in the other person's side, nudging). The "say no more" extender means, rather literally, "You don't have to tell me anything more."

This buzz term (or terms) was used when Idle played a character (usually opposite fellow Pythoner Terry Jones as a stuffy Brit), who persistently (and wrongly) tried to put a sniggering sexual implication on perfectly ordinary situations:

-- Idle: "Your secretary, she's a bit of a goer, isn't she?"

-- Jones (perplexed): "Umm, perhaps."

-- Idle: "Wink wink nudge nudge. Say no more, say no more."

Within the past 30 years "Wink wink nudge nudge" has also taken on almost its exact opposite meaning, used sarcastically to mean something along the lines of "I'm sure it's painfully obvious to us both."

The implication of either a) sarcasm (that is usually already overtly obvious) or b) a double entendre. Can be done just physically or both physically and verbally at the same time; but more often than not is just spoken.
Has been known to be shortened to "Nudge nudge" or nudging someone twice and saying, "Eh eh?"